Nokia Corporation (ADR) (NOK) 3Q Earnings Analysis

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) reported third quarter earnings in which devices and services (D&S) revenue performed beyond expectations, but NSN and HERE revenue did not come in as expected though they reported healthy margins, according to a report from MKM Partners.

Analysts (Michael Genovese and Matt Bielawski) at MKM Partners note that D&S divestiture is a positive development for Nokia “but see the good news, including likely dividend resumption, to be largely priced in.”

Nokia beating most of the estimates

For the third quarter, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), locked in revenue of €5.66 billion, which was below MKM Partners analysts’ expectations of €5.83 billion and the consensus estimate of €5.77 billion. Gross margins were in line with the estimates at 31.7%, and operating margin of 3.8% was above the estimates by a whisker due to strong performance in the NSN and HERE segment. Nokia’s earnings before interest and tax (EBIT) came in at €215 million, beating the analysts’ expectations of €208 million and consensus of €111 million. EPS for the third quarter came in at €0.01.

The Finnish phonemaker’s Devices & Services revenue was above expectations. Devices and services sales came in at €2.90 billion, above analysts’ estimate of €2.78 billion. Sales for smart devices came in at 8.8 million units, which was also above the analysts’ forecast by 1.0 million, while sales for the mobile device unit was 55.8 million beating the estimates by 0.5 million. Nokia is expecting to sell a major portion of its devices and services wing to Microsoft during the first quarter of 2014 for €5.44 billion in cash.

NSN disappoints a bit

Revenue from Nokia Siemens network (NSN) slightly disappointed, dropping 7% quarter on quarter and 26% year on year to €2.59 billion, which is below analysts’ estimate of €2.85 billion. Gross margins at NSN were 36.6% also below the expectations. For the fourth quarter, management expects operating margins to be 12% plus or minus 4% and MKM analysts estimate 12.5%. Also, analysts are eyeing more or less flat year on year revenue for 2014.

Operating cash flow for the third quarter was €9 million and FCF was (€64mn). Net cash came in low at €2.4 billion from €4.1 billion at the end of the second quarter primarily due to full acquisition of Nokia Siemens Network. Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) stated that pro forma net cash would have been €7.5 billion if the Microsoft deal had closed during the third quarter of 2013.

The analysts have maintained Neutralrating on Nokia with a target at $7.50.

Author: Aman JainAman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com